Firm Ownership as a Recruiting Incentive: Be Careful!

ownership as a recruiting incentive
January 19, 2023

While the good news is that most Architecture and engineering (AE) firms are experiencing business upticks; the bad news is that the competition for recruiting talented architects and engineers to perform that new work is growing increasingly fierce.

That bad news is leading some firms to make a significant mistake by offering firm ownership stakes to candidates who may not have what it takes to be effective leaders.

The Risk of Too Great a Reward

Yes, recruiting and landing high-level talent is vital if you want your firm to grow and thrive. And, yes, multiple firms are likely vying for candidates. However, offering an ownership stake to someone who’s an “unknown quantity” to your firm can quickly turn into regret.

In recent months we’ve helped multiple firms extricate themselves from some very detrimental financial situations due to ownership stakes gone wrong. In each situation, the new hire was offered stock in the firm as a recruitment incentive. However, in each case, after the hire, the firm discovered that how the employees represented themselves in interviews and how they performed on the job were very different.

The firms in question had good years (based on the efforts of existing staff), and their stock went up—which is excellent news. But on the flip side, it’s costing them money and time to part ways with the employee-owners they brought on (and up) too quickly—which is not excellent news.

Ownership Is Precious in Firms of Any Size

There’s a common misconception in smaller firms that giving an ownership stake to a new employee is a manageable risk since the firm is small and any strong candidate will make a positive contribution to the organization’s success.

Unfortunately, the reality is that the number of architects and engineers who can put more into a firm than they take out—which, fundamentally, is the measure of a good owner—is relatively small. That’s why the concept of “investors” is often foreign to small firms. Smart owners won’t just make someone a principal because they bring some capital to the table. Each new owner must possess the skills and experience to help drive positive results in the long term.

Preventative Medicine Is Key

Getting out of a regrettable hiring decision takes a lot of work. A better approach is to avoid getting into the situation in the first place.

To protect your firm and employees, potential owners should be required to meet specific criteria. That attitude may hinder your recruiting and retention to a degree, but losing some candidates or employees is much better than facing the hassles of cutting ties with an unproductive owner.

Interestingly, while some people see these criteria as barriers to ownership (as they should be, frankly), those who have the “right stuff” for ownership don’t find meeting these requirements to be difficult. One reason for that opinion is that they’re entrepreneurs at heart, and they have the same expectations of themselves that firms have of them.

If it sounds like we’re encouraging firms to be stingy with ownership, we are! It’s easy for a candidate to craft their resume in a way that puts their background in the best possible light. We all do that because it’s human nature. And with a bit of practice, anyone can impress in an interview.

But only some people have what it takes to be effective owners. Please take steps to be sure it’s one of those few to whom you grant this incredible opportunity.

Next Steps

Join our upcoming webinar, where we’ll discuss this topic in much greater detail with tips on hiring the right people while avoiding the wrong ownership decisions and the three aspects of ownership that must be well-defined and met by any candidate.

Brad Wilson, CMA, CDA